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Banking on the Blockchain

Credit unions will be blockchain organizations long before banks. A blockchain credit union is inevitable. Tom Sheppard, a blockchain and finance expert explains why it is fated to happen. My question is, who jumps first? Does a credit union become a Decentralized Autonomous Organization (DAO) or does a DAO become a credit union? I suspect the latter, but who knows? What I do know for certain is that it will happen—it’s only a matter of time.

Banking on the Blockchain

Written by Thomas K Sheppard May 2024

© 2024 All rights reserved.

Blockchain: A Seductive Technology

Blockchain, FinTech, distributed finance (DeFi), smart contracts, cryptocurrencies, and AI. In the last few years all these technologies have been seriously shaking up the world of banking.

Most of my career, I have been living in the free fire “combat” zone between technology and business, especially banking. This zone has been the scene of many spectacularly expensive failures.

According to a study by the Standish Group, a substantial number of major technology projects (19%) fail outright (Standish Group, 2018). My own experience, and that of many of my contemporaries, suggests this number does not include countless smaller projects where technological visionaries (technophiles) implement technologies using the latest “breakthroughs” in technology which fail to deliver meaningful improvements in efficiency or effectiveness for the business. These failures often are the result of technophiles lacking a firm understanding of business needs.

Understanding business and the needs of specific businesses is the only firm foundation to enable technological innovations, such as the blockchain, to make substantive improvements. Being enamored of the latest technology is generally bad business.

Technology vs. Results

Banking on the Blockchain

Based on my decades of experience and education in this free fire zone I am understandably skeptical of the hype surrounding any technology such as AI, the blockchain, smart contracts, and cryptocurrencies. Recent experience has moved me beyond the hyperbole on these topics, I see very real and beneficial applications of these technologies in today’s banking world.

To be clear, my vision is not for the whole banking world. Now, I see the greatest opportunity for immediate, effective application of these technologies specifically in the realm of Credit Unions. Although there are arguably other opportunities in the broader banking world, I confine this article exclusively to credit unions and to the general realm of the blockchain. In a separate article I will discuss how AI can be effectively harnessed.

Credit Unions and DAOs

A key element of the cryptocurrency world is the decentralized autonomous organization (DAO). Without discounting the differences, the similarities between a Credit Union and a DAO are substantial.

Structure and Governance

In their essentials, both Credit Unions and DAOs are member-owned cooperatives. The most important difference between the two is how the organizations are managed.

DAOs are blockchain based organizations that operate through smart contracts. These smart contracts are self-executing with the terms of the agreement directly written into lines of code. DAOs are decentralized, meaning they are not controlled by a central authority but by the collective voting of their members. Decision-making processes and financial transactions are transparent and immutable due to blockchain technology (Buterin, 2014).

Credit Unions are member-owned financial cooperatives. They operate under a more traditional governance structure where members elect a board of directors. These directors make decisions on behalf of the membership. Credit unions are typically non-profit organizations, prioritizing the needs of their members over generating profit (National Credit Union Administration, 2021).

Organizational Management

Although, in principle, a DAO doesn’t appear to have a board of directors, it can in practice. A DAO can be structured so that the members elect a board which is empowered to operate the DAO. Just as the credit union members can vote in, or vote out, board members, so can the DAO. Because of this, there can be DAOs wiht little substantive difference in how they operate than do most credit unions.

A Natural Fit

Both DAOs and credit unions are based on the fundamental concept of members. Members are the owners in both structures. Members have a contract in both structures. Membership brings with it specific rights and responsibilities which are enumerated in a contract which must be accepted by the member. The board of directors of a credit union is bound by that contract as well.

The point is that the current membership and control structure of credit unions is already highly compatible with the membership and control structures of a DAO. There is no substantial impediment for a credit union to implement their membership contract and governance structure as a DAO. This could be done in place of, or in parallel with, their existing organization, governance, and regulatory mechanisms.

In a DAO, smart contracts (computer programs) can take on a substantial portion of the role of the board of directors in the credit union.

Membership Shares and Cryptocurrency

Banking on the Blockchain | Credit UnionMember deposits in a credit union are referred to as shares, both legally and operationally. The may be called draft shares or deposit shares, or some other kind of share based on the type of account. Logically, this implies that you have given the credit union your money in exchange for shares in the organization. Your credit union shares are redeemable receipts for your deposits.

Membership shares in a credit union represent an individual’s ownership stake in the institution. When a person joins a credit union, they typically purchase a nominal share, which grants them membership and voting rights. This share signifies their part-ownership and entitles them to participate in the democratic governance of the credit union. The primary purpose of these shares is to foster a cooperative model where profits are returned to members through lower fees, higher savings rates, and other benefits (National Credit Union Administration, 2021).

Although we don’t typically think of them this way, each time you use your credit union debit card, or write a check against your credit union account, you are converting member shares into US Dollars (USD) and using them to make purchases. Effectively, this means that your credit union shares are a receipt currency.

Receipt Currencies

A receipt currency represents a claim to a certain value or asset, which could be in the form of goods, services, or other financial assets. For example, warehouse receipts have historically been used to represent commodities stored in warehouses, such as grain or metals. These receipts can be traded or used as collateral, providing a flexible mechanism for commerce (Menger, 1892).

While most cryptocurrencies today are not receipt currencies, I am aware of at least one cryptocurrency (CuBit™1) which has been expressly designed as a receipt currency.

1 CuBit is a trademark of Universal Real Estate Stablecoin, LLC. It is used here with permission.

Member Shares as Cryptocurrency

It would be extremely easy for a credit union to issue a receipt cryptocurrency backed entirely by the member deposits. Credit union shares as cryptocurrency (Credit Union Coins™, CUC™)2 are a de facto stable coin pegged to USD without the need for any complex algorithms.

Further, there is no need for sophisticated reserves management beyond what the credit unions use already. Anyone wanting to acquire CUC™ becomes a member of the credit union DAO (using the same contract terms currently applicable to credit union membership contracts) and receives CUC™ in exact proportion to the USD they deposit.

2 Credit Union Coins and CUC are trademarks of The Skillful PM, LLC. They are used here with permission.

A New Member Service

The whole cryptocurrency side of the credit union could be offered to all existing members along with digital wallet custody services so that members can use their CUC™ account just as they would any other share draft or share deposits accounts.

CUC are easily exchanged for USD and are backed 100% by the member deposits in exactly the same way a check, wire, or ACH draft is handled by a credit union today.

This simple and easy approach doesn’t require any additional regulations as long as the CUC™ accounts don’t take custody of any non-CUC™ cryptocurrency.

Financial Bridge to the FutureBanking on the Blockchain

Credit unions are in the unique position to provide a reliable and well-regulated bridge between USD and the cryptocurrency world. They could take over that role almost overnight. Applying all the same regulations to CUC™ deposits and related banking activities as they do USD deposits, they can immediately inject an unprecedented level of credibility and stability into the world of cryptocurrencies.


Of necessity, this article is a simplified discussion of the unique opportunity credit unions have to bridge the gap between the blockchain and today’s banking world. There are concerns to be addressed and resolved to make this happen. Based on what I know of both banking and the world of blockchain those obstacles, while important, are essentially solved today. The question is, which credit union is going to have the vision and courage to convert themselves into a DAO so that they can be the financial institution of the future for the masses.

If your organization would like to explore how the blockchain can enable them to invade the cryptocurrency world with minimal risks, feel free to reach out to the author through this publication.

Thank you to our guest author, Thomas Sheppard, for his insightful contribution.

At Gilman Patrick, we help bankers save money by identifying and optimizing key elements that drive progress, and then creating a roadmap for successful execution. Discover how we can revolutionize your organization


About the Author

Thomas Sheppard, Enterprise Program Manager

  • 40+ years technology experience
  • 30+ years banking experience
  • 30+ years operational and technology consulting experience
  • Specialties: Strategic Planning, Enterprise Program Management, Blockchain Architecture, AI and Blockchain Implementations in Financial Services, Data Migration, Organizational Design, Operational Risk Management, Mergers and Acquisition Integrations
  • MS Project Management
  • MS Management
  • BS Computer Sciences and MIS

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